Packaging Stocks

About Packaging Stocks

Packaging is a defensive way to own industrial exposure, because demand follows the number of units customers ship rather than what those units cost. People keep buying food and drink in a downturn, so volumes hold up far better than in most cyclical sectors, and the stocks tend to be cheap, cash generative and reasonable dividend payers.

Geography does something unusual here. An empty box or can is mostly air and costs a fortune to ship, so plants are built next to the customers that fill them and the competitive map stays regional even for companies operating worldwide. That limits how many competitors any given plant actually faces, and consolidation in corrugated and cans has made pricing considerably more rational than it used to be.

The margin swing comes from a lag. Long-term contracts index to commodity prices like containerboard, aluminum and resin, so input costs reach customers late. When input prices fall, margins expand before the contracts catch up, and when they rise the reverse happens. Read the direction of raw materials and you have read most of the near-term earnings. Plastic packaging carries an additional regulatory overhang that the fiber and metal side does not.

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